OceanaGold Corp

TSX:OGC

Earnings Call Analysis

Earnings Call Transcript 2024-Q3

[Operator]

Good morning, ladies and gentlemen, and welcome to the OceanaGold Corporation Q3 2024 Earnings Conference Call. [Operator Instructions] This call is being recorded on Thursday, November 7, 2024.

I would now like to turn the conference over to Rebecca Henare. Please go ahead.

[Rebecca Henare, executive]

Good morning, and welcome to OceanaGold's Third Quarter 2024 Results Webcast and Conference Call. I'm Rebecca Henare, Director of Investor Relations. We are joined today by Gerard Bond, President and Chief Executive Officer; Marius van Niekerk, Chief Financial Officer; David Londono, Chief Operating Officer, Americas; and Peter Sharpe, Chief Operating Officer, Asia Pacific.

The presentation that we will be referencing during the conference call is available through the webcast and on our website. I would also like to remind everyone that our presentation will be followed by a Q&A session. As we will be making forward-looking statements during the call, please refer to the cautionary notes included in the presentation, news release and MD&A as well as the risk factors set out in our annual information form. All dollar amounts discussed in this conference call are in U.S. dollars.

I will now turn the call over to Gerard for opening remarks.

[Gerard Bond, executive]

Thank you, Rebecca, and thanks to everyone, for joining the call today. I'm pleased to say that OceanaGold's third quarter results were excellent from a production, financial and growth perspective. In total, we produced 37% more gold at a lower all-in sustaining cost quarter-on-quarter. All 4 operations delivered higher production at lower unit costs. This increase in gold production includes record quarterly production from Haile, which powered a significant reduction in Haile's all-in sustaining costs and its strong free cash flow delivery.

Together with record average realized gold prices, OceanaGold generated an outstanding $66 million of free cash flow for the quarter. This free cash flow does not include 10,000 ounces of gold produced but not sold during the quarter. Our free cash flow margin of around $490 per ounce was derived on an average realized gold price of around $2,500 per ounce. The gold price has since moved higher. We're expecting the fourth quarter to be our strongest for the year from both a production and cost perspective. So we are also expecting another strong quarter of free cash flow generation.

Our cash flow was deployed in line with our capital allocation framework in which we were able to self-fund our exciting exploration growth opportunities, repay debt and buy back shares under our new buyback program. We also paid our semiannual dividend in October. In relation to exploration, during the quarter, we shared some exciting drill results at Haile, where we had a number of incredibly high-grade intercepts. Our exploration program also confirmed increased mineralization at the high-grade WKP deposit.

And during the quarter, we were delighted to see that the Waihi North Project, which includes the WKP deposit, is included on the New Zealand government's list of projects being considered for Fast-track consenting. We are progressing the Waihi North Project pre-feasibility study and are on track to finalizing it by year end, and we look forward to sharing the outcomes of this.

Finally and most importantly, we've made good progress on our safety improvement plan following the 2 fatalities at Didipio as previously reported. The safety of everyone working at OceanaGold is the highest priority, and we are focused on improving the effectiveness of our 2 core safety programs, increasing hazard identification training, particularly in relation to stored energy, and we have increased the level of infield safety coaching at Didipio. Our people have worked hard to deliver the operational and financial results we are reporting today. We are all committed to this being done safely.

I'll now turn the call over to Marius, who will discuss the financial highlights.

[Marius van Niekerk, executive]

Thank you, Gerard, and good morning, everyone. During the third quarter, we generated a record $345 million in revenue with realized gold prices averaging around $2,500 per ounce. Our net profit was $61 million and adjusted earnings per share was $0.09, which is in line with analyst consensus. This is more than doubled the $0.04 per share in the previous quarter. AISC improved to $1,729 per ounce, a 19% decrease from the prior quarter, mainly driven by a 30% increase in gold sales volumes through increased production and an increase in byproduct credits.

As Gerard mentioned, we achieved an important free cash flow inflection point for the business. We generated $66 million of free cash flow during the quarter and close to $100 million year-to-date. This quarter's free cash flow was greater than the cumulative free cash flow generated in the first half of this year and the whole of last year combined. We expect a strong fourth quarter, which will further generate significant free cash flow.

During the quarter and in line with our capital allocation framework, we repaid $40 million of debt and bought back 3.2 million common shares at an average price of CAD 3.37 per share. Our growing net cash position of $72 million allows us to advance our exciting exploration and growth opportunities and to improve shareholder returns.

I will now turn the call over to David to discuss the Haile operation.

[David Londono, executive]

Thank you, Marius, and hello, everyone. Haile produced record gold production in the third quarter with 64,900 ounces, which in turn drove lower all-in sustaining costs for the quarter. Ore for the quarter was sourced from Ledbetter open pit, where we mined at an average grade of 243 grams per tonne and from Horseshoe underground, where we increased underground tonnage at average grades of 624 grams per tonne.

Since we were able to mine more ore than we were able to process during the quarter, it gave us the flexibility to direct feed the highest grades to the mill while continuing to build our ore stockpiles to be processed later. We expect the fourth quarter production to be stronger than the third quarter and achieve annual guidance with continued access to high-grade ore at Ledbetter and Horseshoe. As a result, we expect all-in sustaining costs to continue to reduce and bring us into our full year guidance range.

This quarter, we also released some exciting exploration results at Horseshoe and Horseshoe Extension. The results support our goal of increasing resources close to our existing infrastructure in the underground operation. We also released some outstanding infill results from Ledbetter Phase 4, which is currently in the mine plan as the last phase of the Ledbetter open pit. With these results, we're continuing to work on a trade-off study to evaluate best path forward to mine Ledbetter 4, whether as an open pit or as an underground.

I will now turn the call over to Peter to discuss the Asia-Pacific operations.

[Peter Sharpe, executive]

Thank you, David, and good morning, everyone. During the quarter, Didipio delivered gold production of approximately 28,000 ounces and copper production of 3,400 tonnes. Production was higher than the previous quarter, predominantly as a result of improved process plant availability. The site, however, experienced a significant storm event in early September with roughly 170 millimeters of rain falling in a 3-hour period, which was then followed by a number of other smaller rain events over the following week. Access to the mine was restricted for several days over this period, slightly impacting production performance. However, the unusual intensity of the storm did impact our exploration drill rigs located at the bottom of the mine, where the rain inflows exceeded our pumping capacity.

We made good progress towards our goal to increase the mining rates from underground during the quarter, supported by the delivery of a new loader and a new truck, and we still expect to achieve annualized run rates of 2 million tonnes per annum by the end of this year, on our way to our target of 2.5 million tonnes by the end of 2026.

Increased production in the monzonite areas are helping to offset the impacts of slower mining rates in the high-grade breccia areas of the mine. Whilst we expect improved underground mining performance from Didipio in the fourth quarter, we are not expecting an increase in average mine grade due to the lower rates of mining from the high-grade breccia areas, which we noted with our second quarter results. With this, we have adjusted our 2024 production guidance to 104,000 ounces and 108,000 ounces. And as a result of the lower ounces, our all-in sustaining guidance is now $1,000 to $1,100 per ounce.

Macraes delivered another strong result during the quarter, producing approximately 28,000 ounces of gold. Access to ore in the Innes Mills 7 open pit was achieved midway through the quarter, improving grades to the mill and ore delivery from this pit is expected to continue through the entirety of the fourth quarter. Macraes has performed in line with our expectations year-to-date and we expect to be able to meet its original production guidance with increased production in the fourth quarter. In our efforts to assess opportunities for additional mineralization in Macraes that could be economic at these higher gold prices, we spent an additional $800,000 on drilling this quarter and expect to spend another $1 million of additional drilling in the fourth quarter.

Waihi produced around 14,000 ounces of gold in the quarter, an improvement over each of the first 2 quarters this year. This was driven by slightly higher grades mined and improved compliance to plan in the remnant mining areas. We expect to be able to maintain these improvements going forward to drive a stronger fourth quarter. Whilst we are pleased with the improvements, we do not expect to fully recover the effects of the first half performance. And as such, we have revised Waihi's 2024 production guidance to 48,000 to 52,000 ounces. And as a result of the lower ounces, our all-in sustaining cost guidance is now $2,225 to $2,375 per ounce.

The longer-term outlook for Waihi will be updated as part of the updated technical report, which will be finalized by the end of the year. We particularly look forward to demonstrating in that study the upside that WKP represents and how that will fit into the Waihi plan longer term. The excitement for WKP has also been amplified by the naming of the Waihi North Project last month by the New Zealand government as a potential Fast-track project. With the latest announcement, we look forward to submitting our applications in the new year as we work towards our permits to develop the project in the coming years.

I'll now turn the call back to Gerard.

[Gerard Bond, executive]

Thank you, Peter. So as you've heard, our 2 largest operations, Haile and Macraes, representing around 70% of our total production are performing well and in line with guidance. However, for the reasons mentioned by Peter, we are changing the guidance for both Didipio and Waihi. As a result, full year consolidated gold production guidance is now expected to be around 4% below the bottom end of the original guidance range at 480,000 to 500,000 ounces for the year. This implies that we expect fourth quarter production to be the strongest quarter of the year at between 142,000 and 162,000 ounces with stronger production expected from all sites.

Copper production guidance remains unchanged. As a result of the lower expected gold production and a marginal increase in CapEx, we updated the consolidated full year all-in sustaining cost guidance, which is now expected to be $1,725 to $1,825 per ounce. With a strong fourth quarter production result expected, we also expect fourth quarter consolidated all-in sustaining costs to be the lowest of the year at between $1,400 and $1,650 per ounce.

Our total capital expenditure for the year has been updated and is now around $25 million or 5% above the original guidance range. It is disappointing to have to change part of our guidance for 2024, particularly as we have delivered on production guidance for each of the preceding 3 years. Stepping back, though, the [ case ] for OceanaGold remains strong. We have excellent organic growth prospects that we expect to be able to fund from substantial operating cash flows and from a net cash position.

In summary, we remain committed to creating and sustaining a safe workplace for everyone working at OceanaGold. We have a tremendously talented and committed team who work hard to deliver our results, and all shareholders can see today the outcomes of their efforts. We delivered strong production and substantial free cash flow generation in the third quarter, which further strengthened our balance sheet and increased our net cash position.

We will continue to progress on our growth options and look to increase returns to shareholders through our existing dividend and now the share buyback program. We expect the fourth quarter to be our strongest for the year with higher production expected at all sites, driving a lower all-in sustaining cost. At today's gold prices, we expect this will translate into another strong quarter of free cash flow generation. We look forward to providing further exploration updates and finalizing the Waihi North Project pre-feasibility study before the end of the year.

I'll now hand the call back to the operator and open the line to any questions.

[Operator]

[Operator Instructions] Your first question comes from Ovais Habib at Scotiabank.

[Ovais Habib, analyst]

Congrats on a good quarter and achieving the free cash flow inflection point that we were all waiting for. Just a couple of questions from me. Number one, Gerard, you have a couple of studies in the pipeline, the Waihi North, PFS that's including WKP, Didipio underground PFS, you've got the Haile underground resource update, including the Ledbetter trade-off study coming up.

Just -- I want to start off the Didipio underground PFS. Based on some of the challenging ground conditions that we -- or you guys encountered within the breccia stopes in Q2, how is that expected to impact the results of the PFS, if any?

[Gerard Bond, executive]

Look, the Didipio study is about increasing the rate of haulage of tonnes from underground, which will have the benefit of displacing lower-grade stockpiles. The breccia stope areas is a subset of the overall feed. And so the -- what -- where we mine from in the mine does not alter the study. It obviously will moderate the amount of high-grade material that we bring into the mine plan from previously over a few -- next few years to probably over the next 4 to 5 years. So it spreads out that access to that high-grade ore.

But pleasingly, the breccia stope redesign work makes sure that we get all of that high-grade ore. So from a value perspective, the great design work or redesign work that's been done by the team there make sure that we get it all, but the overall work being done to increase the mining rate is on track. And as Peter said, by the end of this year, we expect to be at 2 million tonnes material moved from an underground on our way to the target of 2.5 million tonnes. So in essence, it doesn't -- the ground conditions we're experiencing doesn't change our fundamental goal of increasing ore haulage. It just alters the mix of what comes out when.

[Ovais Habib, analyst]

Perfect. And just again, where in terms of the WKP and I guess, Waihi North PFS, obviously, WKP gone on to the Fast-track this, that was great to see. What are the next steps for WKP in terms of permitting? And how do you see Waihi kind of fitting into this picture based on the fact that Waihi has been having issues over the last, I would say, a year or 2 now?

[Gerard Bond, executive]

Yes. Look, it's -- I think when we bring out that WKP or Waihi North Project PFS, you'll see the [ flight path ] that we expect for Waihi inside of that study. And so you'll see likely a flight path for Waihi operations that reflect its recent performance plus a bit of expected improvement. But the ultimate goal is to make sure Waihi safely and profitably produces until we bridge into the ore feed from WKP.

And as it relates to the permitting question, I mean, again, I'll just go to the public comments from the New Zealand government. I mean, we have been added to the list of Fast-track projects, the government of New Zealand has said they're looking to have that bill enabled or enacted, I should say, by the end of this year. And that would precede or enable, I should say, our submission, formal submission of us being a Fast-track project early in 2025. The government then goes through that process, and we'll all get to see what Fast-track means. But our hope is by the end of 2025, we are officially gated as a Fast-track project, and that gives us our consents, and that is our -- the starting point for this project.

So in a global context, the New Zealand government is certainly doing all it can to make resource development in New Zealand faster than most other jurisdictions in the world.

[Ovais Habib, analyst]

Perfect. And that's it for my questions, but I just wanted to say congrats to David and the Haile team for the ramp-up at Haile. Really good to see that.

[Operator]

[Operator Instructions] The next question comes from Cosmos Chiu, [ OceanaGold ].

[Cosmos Chiu, analyst]

I'm CIBC still. I don't know if that's changed. Maybe my first question is on your guidance for Q4. Good to see that it's going to be the best quarter of the year as projected. But you've still given us a fairly sizable range, 142,000 to 162,000 ounces. You kind of touched on it, Gerard, but could you maybe highlight some of the key drivers that could either push you to the higher end of that range or the lower end of that range?

[Gerard Bond, executive]

I got excited for a minute there, thinking that you'd joined OceanaGold. Look, I mean, mining is mining. We have selected a range that we know we will satisfy. And obviously, our aspiration is to be in the upper end of that range. And there's no rocket science here with good access to ore from both underground and open pit at all sites, having a plan that we execute on and making sure that whether it'd be weather or the reliability of our maintenance programs to deliver availability in the process plants, we expect to be able to deliver the midpoint or above that guidance range. That's our goal. But things can happen, which is why we have a range.

[Cosmos Chiu, analyst]

Of course. Gerard, as you mentioned, your 2 larger assets Haile and Macraes, they're performing very well. However, Didipio and Waihi, there's been some issues. And maybe could you talk about these issues? You talked about these issues in detail. But I guess what I'm trying to get to is at Didipio, the breccia stopes, the issue with the breccia stopes and you needing to change your approach and Waihi, the remnant areas. Is that permanent? These changes in approaches, are they permanent? And to the extent that you can share with us, how will this impact your budgeting for next year as you look forward into 2025?

[Gerard Bond, executive]

Sure. Well, I mean, I think every time we learn more about our mines, and that will be reflected in the budgets and the forecast that we give for next year. I mean, I think there's a great story to be shared there at Didipio. Basically, the work that is being done is about making sure that we get the most gold out of that mine over its life. And as we explained last quarter, the nature of that area of the mine, the breccia stopes is a little more fragmented and a little more brittle than what exists in the dominant part of the mine, which is the monzonite zone.

And so what the team have done, they rightly identified that a one-size-fits-all approach to stoping was seductive because it was uniform, but it wasn't productive in terms of getting all the ore out of the breccia area. So what they've done is size the stopes appropriately to make sure that it's safe for our people, that we don't have equipment loss, but most importantly, that we get all of that high-grade ore out. So it's actually good mine design. And as I said before and as we said last quarter, yes, that will spread the amount of high-grade ore feed from the breccia stopes over a longer period of time, but we will get it all out. So that's actually good value work from a shareholder perspective.

And at Waihi, I mean, I think you've seen quarter-on-quarter improvement. I think Peter said we're going to have an even stronger quarter in the final quarter. I mean it's come out of a tough period of overwhelmingly having to mine in remnant areas with a degree of unpredictability, but I think we're getting to the other side of that, Cos. And I think you'll see, as I said before, in the Waihi North Project pre-feasibility study, a new realistic and more highly confident pathway for delivery from Waihi until we bridge into WKP.

[Operator]

We have no further questions. I will turn the call back over to Gerard Bond for closing comments.

[Gerard Bond, executive]

Well, thank you, everyone. That does conclude the webcast and the conference call. The replay will be available on our website later today. On behalf of everyone at OceanaGold, we appreciate you for joining us and wish you a very pleasant rest of the day. Bye for now.

[Operator]

Ladies and gentlemen, this concludes your conference for today. We thank you for participating, and we ask that you please disconnect your lines.